NEWS ANALYSIS : Key Distinctions Separate Candidates’ Economic Plans
As they embark on a fall campaign in which the economy is likely to overshadow all other issues, President Bush and Bill Clinton are offering fundamentally different visions of how they would address the nation’s current economic woes and ensure its long-term prosperity.
In many respects, economists say, the competing agendas are as noteworthy for what they have in common as for what they do not: Bush and Clinton both endorse market forces as the primary engine of economic growth, and acknowledge the need for government fiscal restraint in the face of a record budget deficit. And neither would necessarily transform the nation’s economic landscape over the next four years.
Nonetheless, there are key distinctions in their basic attitudes and strategies regarding the economy. And, faced with the kinds of decisions almost sure to confront the next president, they are likely to lead the government in significantly different directions.
“The debate is not capitalism versus communism, but what kind of capitalism we want,” said Jeff Faux, director of the Economic Policy Institute, a Washington think tank. “It is an appropriate debate for the post-Cold War world. Because while market-oriented economics have succeeded and communism has collapsed, there are still very different forms of market economics to choose from.”
Broadly stated, the Bush and Clinton economic programs diverge along the classic lines that have separated Republicans and Democrats for generations.
Bush says he believes the government should, as much as possible, leave the economy alone to revive and regenerate itself. The primary role of Washington, in his view, should be to use tax incentives to stimulate private-sector behavior but eschew efforts to channel money to neglected areas or promising new sectors.
Clinton says he sees a more aggressive role for government as a direct instrument of change. Instead of depending on the private-investment decisions of individuals and companies, Clinton would direct federal funds into areas he believes would strengthen the nation’s competitive position over the long run: investments in infrastructure, education and job training.
“The critical difference between them,” said Robert Greenstein, director of the private Center on Budget and Policy Priorities in Washington, “comes down to this question: Is the government an obstacle to economic growth, or is government an indispensable part of what is needed to obtain faster rates of growth?”
Both candidates would use tax policy to accomplish their goals. Bush has renounced his 1990 deficit-cutting deal with Congress and reaffirmed his support for the supply-side agenda he inherited from Ronald Reagan. He proposes to cut taxes across the board for individuals, lower taxes on corporations, and reduce the capital gains tax on profits from stocks, bonds, real estate and other investment assets.
Clinton, like Bush, favors some sort of broad middle-class tax cut to stimulate the economy. But he would raise taxes on the rich, rather than lower them, to help finance the infrastructure improvements and training programs he has proposed.
Their contrasting approaches are evident in other areas of economic policy. Bush wants to ease the regulatory burden on corporate America and embrace open trade with America’s neighbors, while Clinton hopes to develop an industrial policy in which the government would help shape U.S. strategy in the intensifying economic competition with Europe and Asia.
Both candidates plainly stated their economic philosophies in their convention acceptance speeches this summer:
“We offer a philosophy that puts faith in the individual not the bureaucracy . . . We start with a simple fact--government is too big, and spends too much,” Bush said in Houston.
“If you are sick and tired of a government that doesn’t work to create jobs, if you’re sick and tired of a tax system that’s stacked against you, if you are sick and tired of . . . reduced investments in our future, . . . then join with us,” Clinton said in New York.
If the two agendas have a common flaw, economists say, it is their failure to offer a solid program for reducing the federal deficit, which will reach an estimated $334 billion this year. The deficit has severely limited the ability of both candidates to offer truly ambitious policy goals that might fully exploit their philosophical differences. And it is the principal problem cited by economists who believe that neither Bush nor Clinton will be able to significantly alter the sluggish pace of the nation’s economy in the short run.
A new study by the WEFA Group, a Bala-Cynwyd, Pa., forecasting firm, projects that economic growth will remain restrained over the next four years no matter which man occupies the White House: 2.9% next year under Clinton versus 2.8% under Bush, rising to 3.0% in 1996 under the Democrats versus 3.1% with the Republicans.
In neither case would the economy grow at anywhere near the rate typically seen during a recovery, the firm says. “We think you would get a little less business investment under Clinton, but neither man will make a big difference,” observed Ross DeVol, director of long-term U.S. forecasting for WEFA.
The deficit has made it difficult for both candidates to spell out how they would pay for their proposed programs. Both Bush and Clinton have been accused of fudging many of their basic calculations to avoid the appearance that their plans will worsen the federal debt burden in the short run. Although both have promised to balance the budget by the late 1990s, they have not advocated the kind of sacrifices that would be necessary to bring the deficit under control.
“Bush and Clinton are both offering non-solutions if you are looking for deficit reduction,” said Robert Reischauer, director of the Congressional Budget Office.
The Bush Program
Before Bush stepped up to the podium at the Republican Convention in Houston, economic policy-making in his Administration had come to a virtual standstill. Constrained by the deficit and the 1990 budget agreement, the Administration had dithered all year on how best to respond to the stumbling economy.
After enduring months of criticism late last year for failing to take action, the White House introduced a modest package in January: a capital gains tax reduction, a tax credit for first-time home buyers, expanded individual retirement accounts, repeal of the luxury tax on boats and other big-ticket purchases and a series of business tax incentives. But the program was quickly torpedoed by Congress.
Finally, in Houston, Bush seemed to break out of his funk. Abandoning specifics, he offered a simple, Reagan-style formula that he said he would flesh out with details after his reelection.
On the tax front, Bush sought to re-energize his conservative base of support by calling for an unspecified, across-the-board tax cut and an increase in the personal exemption for individuals. He renewed his old demand that Congress pass a capital gains tax cut, which would primarily benefit businesses and wealthy individuals.
On the spending side, Bush offered to finance his tax cuts with matching spending reductions. He threatened to veto any spending bills that exceed his budget proposals, although economists note that Congress has generally honored the spending caps imposed on domestic programs by the 1990 budget agreement.
In addition, Bush proposed a novel income-tax check-off plan that would enable individual taxpayers to earmark up to 10% of their annual tax payments for reduction of the national debt, which now exceeds $4 trillion.
The cornerstone of Bush’s deficit-reduction efforts is a proposed cap on future growth of all mandatory “entitlement” programs except Social Security. By 1997, the Administration says, these caps would reduce entitlement spending by $115 billion a year and produce a balanced budget by 1998.
But Bush has not proposed enough cuts in specific programs to comply with his own spending caps. His latest budget proposal details cuts that would reduce mandatory spending by only $10 billion by 1997. Although it outlines options for further cuts, including reductions in Medicare benefits, they would produce only $65 billion in savings by 1997.
Bush’s refusal to provide further details has led many economists to dismiss his proposals as little more than campaign rhetoric.
“It really is part of the political theater of the absurd,” chided Gary Bass, analyst at OMB Watch, a Washington budget research firm.
The Clinton Plan
Clinton, too, has been accused of failing to back up his own economic plan with substantive details. Even Clinton aides acknowledge that the candidate’s 22-page economic manifesto is based on budget figures that do not always add up.
At the heart of his program is a new emphasis on what Clinton calls federal “investment” spending, to improve education and worker training and upgrade the nation’s infrastructure. Clinton defines infrastructure to include traditional public works projects such as new roads and bridges and non-traditional programs such as data communications networks and air traffic control systems.
Clinton argues that federal spending on such projects has a tremendous payoff: It can lead to faster economic growth, which in turn boosts tax revenues and helps reduce the budget deficit.
“In the new global economy, every asset except two now move across borders with complete ease,” observed Robert Reich, a Clinton adviser and professor at the Kennedy School of Government. “The only two assets which are unique to a national economy are a nation’s people and the infrastructure supporting those people. And so the nation gets the most out of investments in those areas.”
Clinton believes so strongly in such spending that he appears willing to put the deficit on the back burner. His economic plan, titled “Putting People First,” calls for $220 billion in new investment spending over four years.
Overall, his plan’s mix of tax and spending policies, including $150 billion in new taxes and $144 billion in spending cuts, would result in a slightly reduced federal deficit. But his program relies on optimistic assumptions for economic growth.
To many economists, Clinton’s plan revives memories of the famous “rosy scenario” of the early Reagan days, when the White House balanced the budget on paper by using wildly inflated growth projections. “Clinton is doing what Reagan did with his growth projections,” said Robert McIntyre, director of Citizens for Tax Justice, a Washington tax research group. “It’s enough to make you pull your hair out.”
Clinton has proposed raising an average of $20 billion a year by increasing the top income tax rate from 31% to 36% for couples with incomes over $200,000 and individuals who earn more than $140,000. He would impose a 10% tax surcharge on income over $1 million and increase the alternative minimum tax. Separately, Clinton hopes to raise $44 billion over four years by closing tax loopholes for foreign corporations that operate in the United States.
Clinton, like Bush, wants to ease taxes on the middle class. Although he has backed away from a broader tax cut after being criticized for promising more than he could deliver, he is still proposing to cut middle-class taxes by $60 billion over four years.
On the spending side, Clinton promises to cut $144 billion in outlays over four years. But his proposal relies heavily on projected savings from vague administrative reforms throughout the bureaucracy and a pledge to eliminate the jobs of 100,000 federal employees.
There are few big spending programs that Clinton shows a willingness to cut deeply. For instance, he calls for only $16.5 billion in additional cuts in Pentagon spending by 1996, and he would require wealthy Medicare beneficiaries to kick in another $1 billion a year.
More troubling to outside analysts is Clinton’s refusal to provide details on how he would pay for his plans to reform the nation’s health care system. Some economists believe he has ignored the potential costs of his health care proposals in his deficit projections. Although he wants the government to mandate that companies provide basic health care coverage to all of their employees, he has denied Republican assertions that the plan would require hundreds of billions of dollars in new payroll taxes or other levies.
“I don’t think we should allow candidates to be able to propose something if they can’t stand up and say how they will pay for them, and that is Clinton’s problem,” said Barry Bosworth, an economist at the Brookings Institution in Washington.
But the lack of details should not obscure the basic philosophical differences between the candidates, observers say. In fact, the differences are more striking this year than they were in 1988, when the Democrats, cowed by the Reagan-era economic boom, were fearful of clearly stating an alternative economic agenda.
“I think you have to look at both men in broad philosophical terms; that is the only way the voters can possibly try to distinguish between them,” said Martin Feldstein, a Harvard University economist and director of the National Bureau of Economic Research.
“And in those terms, I think there is a big difference.”
The Economy: Bush vs. Clinton
The WEFA Group, an independent economic forecasting firm in Bala Cynwyd, Pa., projects that in most respects the U.S. economy would perform similarly over the next four years under either Bill Clinton or George Bush. The projections, made earlier this month, do not reflect the impact of such recent proposals as Bush’s pledge to seek across-the-board tax cuts if reelected. GROSS DOMESTIC PRODUCT (annual growth rate)
‘93 ’94 ’95 ’96 Bush scenario 2.8% 3.1% 2.9% 3.1% Clinton scenario 2.9% 3.0% 2.8% 3.0% Current rate: 1.3%
FEDERAL DEFICIT (billions)
‘93 ’94 ’95 ’96 Bush scenario $268.0 $255.2 $241.3 $209.0 Clinton scenario $249.4 $236.3 $216.7 $178.3 ’92 deficit: $270.5
INFLATION (annual rate)
‘93 ’94 ’95 ’96 Bush scenario 3.5% 3.6% 4.0% 4.1% Clinton scenario 3.5% 3.6% 4.0% 4.1% Current rate: 3.0%
UNEMPLOYMENT (average rate)
‘93 ’94 ’95 ’96 Bush scenario 7.4% 6.6% 6.1% 6.1% Clinton scenario 7.5% 6.6% 6.1% 6.1% Current rate: 7.4%
Source: The WEFA Group
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